Latest Stories

PCAOB proposal could result in public tracking of auditors

At first, the names of audit engagement partners disclosed in public
company audit reports might not mean much to investors, PCAOB
Associate Chief Auditor Jessica Watts said Wednesday as she described
a new board proposal.

Initially, little public information about engagement partners would
be available, Watts said, under a PCAOB reproposal that would require
disclosure of the identity of the engagement partner in the audit report.

But Watts said the PCAOB has received feedback indicating that over
time, a body of information about the engagement partner’s history
would be developed.

“For example, the disclosure of the name of the engagement partner,
combined with other information compiled over time, could enable
[investors] to research the number, size, and nature of companies and
industries in which the partner served as the engagement partner,”
Watts said.

The PCAOB’s reproposal also would require disclosure in the audit
report of the names, locations, and extent of participation of other
audit firms involved in the audit, as well as the extent of
participation of other persons (whether individuals or companies) not
employed by the auditor who performed procedures on the audit.

Board members at Wednesday’s open meeting devoted substantial time to
discussing the issue of naming the engagement partner in the audit
report. Board member Lewis Ferguson envisioned third-party information
providers monitoring and disseminating auditors’ professional track
records and informing investors on whether engagement partners have
been involved in public disciplinary proceedings, litigation, or restatements.

Ferguson said such information would be useful to investors.

“We certainly know that, increasingly, information is available about
other professionals—doctors, lawyers—and that consumers widely use
rating services and information services about other professionals,”
Ferguson said. “I don’t know why it would be any different for auditors.”

Board member Steve Harris also said such disclosure is common for
many professionals, including tax preparers who sign tax returns.
PCAOB Chairman James Doty said naming the engagement partner could
improve audit quality by reminding auditors of their responsibilities
to the public.

But board members Jay Hanson and Jeanette Franzel were skeptical
about the benefits that information about the engagement partner would
provide for investors.

Hanson and Franzel both said no evidence has been presented to
indicate that disclosing the name of the engagement partner improves
audit quality or enhances partners’ accountability. Hanson said the
board’s reproposing release cites several studies suggesting that
naming the engagement partner produces limited or no improvement in
audit quality.

In addition, Hanson said the personal liability that could result
from naming the engagement partner could result in unnecessary,
defensive audit procedures; higher audit costs; and difficulties for
recruiting in the auditing profession.

“This could provide a disincentive for the best and the brightest
young accountants to become auditors at a time when financial
statements are more complicated than ever,” Hanson said.

Cindy Fornelli, executive director of the Center for Audit Quality
(CAQ)—which is affiliated with the AICPA—said in a statement that the
CAQ supports the PCAOB’s efforts to increase transparency in the audit
but does not believe the auditor’s report is the appropriate place to
identify the engagement partner.

“Engagement partners already are held accountable to multiple parties
including their firms, audit committees, regulators, and investors,”
Fornelli said. “There are also important contributions to the audit
made by many others beyond the engagement partner, including the
firms’ comprehensive quality-control systems.”

The PCAOB is inviting public comment through Feb. 3, and Doty said he
would like the board to decide on a standard by the summer of 2014.
Comments can be made at the board’s website.

Also on Wednesday the PCAOB adopted amendments that conform PCAOB
rules and forms to requirements of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, P.L. 111-203. The amendments established
PCAOB oversight for audits of brokers and dealers.